To The Moon

$Brookfield Renewable Partners LP(BEP)$

Disclaimer: Before we dive into this article, I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

BEP (Brookfield Renewable Partners) stock price surged ahead of the company’s fundamental growth in 2020-2021, it became significantly overvalued. Since then, the stock has dropped sharply, down over 58% from its all-time highs. Despite this decline, the business itself has shown consistent growth. Revenues and income are at record levels, and the company has continued to increase its dividend, which now offers a yield nearing 7%. Additionally, BEP projects a 10% annual dividend growth over the next 5 to 10 years. But the stock still without positive EPS.

These developments have prompted me to reviews on the stock and whether it now represents a good value. In today’s discussion, I’ll share my insights, research, and perspective on BEP.

Earning Overview

Consistent Revenue Increases: BEP continued to grow its revenue in 2024, reflecting increased capacity and strong operational performance. Renewable energy demand remained robust globally, supported by the ongoing transition to cleaner energy sources.

Q3 Highlight: Revenue increased by 24.7% year-over-year, showcasing the company’s ability to capitalize on both new investments and favorable pricing.

Funds from Operations (FFO)

Steady FFO Growth: BEP reported a 10% year-over-year increase in FFO for the third quarter of 2024. This was driven by its diversified asset base, inflation-linked contracts, and disciplined cost management.

Inflation Hedge: Approximately 70% of BEP’s revenues are inflation-linked, allowing the company to effectively navigate inflationary environments and support profitability.

Dividend

Growing Dividend: BEP maintained its reputation as a reliable dividend growth stock, with a current yield near 7%. The dividend payout ratio stood at 86% of FFO, reflecting sustainable growth and shareholder returns.

Dividend Growth Outlook: The company remains committed to growing its dividend by 10% annually over the next 5 to 10 years, supported by ongoing revenue and FFO growth.

Fundamental Analysis

Brookfield Renewable Partners is a global leader in renewable energy, focused on acquiring, owning, and operating renewable power assets. The company generates electricity from hydroelectric, wind, solar, energy storage, and nuclear power facilities. Its diversified portfolio spans five continents and includes $14 billion in renewable power assets. Hydroelectric power accounts for 47% of its funds from operations (FFO), with rapid growth in other areas of the business. Geographically, 58% of profits come from the U.S., 21% from Latin America, 17% from Europe, and 4% from Asia.

The company highlights the increasing global demand for electricity driven by digitalization, AI proliferation, and broader electrification trends. For example, global data center power demand is projected to grow 15-fold by 2030, with data centers consuming up to 20% of U.S. power by then. BEP has partnered with major tech companies like Amazon, Meta, Microsoft, and Google to supply clean energy. In May 2024, it announced a significant deal with Microsoft to deliver over 10.5 GW of new renewable power capacity globally, aligning with Microsoft’s goal of 100% renewable energy consumption by 2030.

Brookfield Renewable boasts long-term stability, with 90% of its cash flows secured under 13-year contracts, 70% of revenue tied to inflation, and gross margins exceeding 70%. It is also well-diversified, with no single market contributing more than 10% of its cash flows. Since 2016, FFO per share has grown at a 12% annual rate, while the dividend has compounded at 6% annually since 2001. Currently, the stock offers a dividend yield close to 7%, making it an attractive option for dividend growth investors.

In Q3 2024, BEP reported a 24.7% year-over-year increase in revenue, a 10% rise in FFO, and an 11% growth in FFO per share. The dividend payout ratio stands at 86%, indicating the company’s strong commitment to shareholder returns. Despite these positive results, the stock has significantly declined, along with most other renewable energy stocks. This could be attributed to broader market concerns, political uncertainties, and increased competition from fossil fuel projects.

While some worry about the impact of political shifts, particularly in the U.S., renewable energy remains resilient. Even in states like Texas, which historically favor fossil fuels, renewables have gained traction due to their cost-effectiveness. Globally, investments in solar energy surpassed those in oil production for the first time in 2023, highlighting a growing preference for cleaner energy sources. Solar and wind energy have become increasingly affordable, with costs projected to continue declining through 2030, further solidifying their competitive edge.

As BEP continues to grow its portfolio and capitalize on the global shift toward clean energy, its long-term prospects remain promising. However, market volatility and political headwinds may present challenges in the near term.

Guidance

Long-Term Contracts: 90% of BEP’s cash flows are under long-term (13-year average) contracts, ensuring stability. Profitability: Gross margins on its power businesses exceed 70%, supporting robust returns on investment. Growth Investment: The company continues deploying capital into high-growth segments like solar, wind, and advanced technologies.

5-Year Growth Plan: BEP is targeting 10% annual growth in FFO per share over the next 5 years. Resilience: Management emphasized the company’s ability to navigate regulatory changes while remaining focused on growth, driven by corporate demand and its low-cost energy production model.

Corporate Agreements: BEP partnered with major corporations like Microsoft, Amazon, and Google, supplying them with clean energy to meet sustainability targets.Notable Deal: A landmark 2024 agreement with Microsoft aims to deliver over 10.5 GW of new renewable power capacity globally.

Risk & Challenges

Brookfield Renewable's CEO addressed concerns about potential regulatory changes in the U.S., particularly regarding tax credits for renewable energy, if Republicans gain control. They approached the topic from two perspectives: macroeconomic impacts and Brookfield's specific business model.

On a macro level, the CEO emphasized that renewable energy enjoys strong bipartisan support, even if new administrations make adjustments. They highlighted the expectation of significant fiscal support to drive U.S. industrial growth, manufacturing, and data centers—all of which will require more energy. As the lowest-cost provider of power, renewables, including Brookfield, stand to benefit from this increased demand. This could create a surprising tailwind for the sector, even under a Republican administration focused on economic growth.

For Brookfield specifically, the CEO highlighted their strategic positioning. The company has diversified its operations globally across geographies and technologies, reducing reliance on government subsidies by focusing on corporate demand and cost-efficient energy production. This strategy has ensured resilience during regulatory uncertainty. Brookfield remains confident in its growth outlook, as it continues to focus on regions with rising electricity demand and low-cost technologies, positioning the company to weather policy shifts without significant disruption.

Brookfield’s leadership stressed that it is the lowest-cost producer of a critical commodity—electricity—that is increasingly in demand, particularly with the rise of AI, data centers, and other tech-driven sectors. As a result, they see no need to alter their business model or growth targets.

Peers Comparison

The company also shared optimistic projections from their recent investor day. Brookfield aims to grow funds from operations (FFO) per share by 10% annually over the next 5 to 10 years. This growth outlook reflects ongoing investments in solar, wind, energy storage, and sustainable solutions like carbon capture, biofuels, and nuclear services. While hydroelectricity remains a core component of their business, contributing stable revenue, other segments like solar (23% CAGR) and wind (12% CAGR) are growing much faster, further diversifying the company’s revenue streams.

Comparing Brookfield Renewable (BEP) to NextEra Energy Partners (NEP), BEP has demonstrated significantly faster growth in revenue (11.4% CAGR) and income (13.7% CAGR) since 2016, while NEP’s figures have remained relatively stagnant. This positions Brookfield as a leader in the renewable energy space, with a track record of consistent growth and innovation.

In summary, despite political uncertainties, Brookfield Renewable is well-positioned to thrive due to its cost leadership, diversified business model, and strong growth outlook, driven by increasing global demand for clean energy.

Market Sentiment

Global Momentum: Renewable energy remained the dominant choice for new power generation in 2024, supported by plummeting costs for solar and wind. Inflationary Environment: Rising power demand and inflation-linked revenues helped BEP weather macroeconomic challenges.

Policy Environment: While regulatory uncertainties in the U.S. (e.g., potential changes to tax credits) raised questions, BEP’s reliance on cost-competitive energy production insulated it from potential policy impacts.

Data Center Demand: With AI and digitalization driving electricity demand, BEP positioned itself as a key supplier for data center power needs, a market projected to grow significantly by 2030.

Valuation

Analyzing BEP’s Historical Price-to-IA Ratio BEP’s historical price-to-invested-assets (IA) ratio has been one of the most reliable metrics for evaluating the company. Currently, BEP is trading at 1.8x IA, significantly below its long-term average of 3.35x and median of 3.08x. Over the past nine years, BEP has experienced notable multiple compression, reaching its lowest price-to-IA ratio in nearly a decade. For context, in 2020, BEP’s price-to-IA peaked at 10x—at which point I exited my position due to overvaluation. Since then, the ratio has dropped by over 90%, driven by a 60% decline in the share price despite IA growing over 100%.

DCF Analysis & Growth Projections Using a discounted cash flow (DCF) analysis, BEP’s IA is projected to grow at 10% annually over the next five years, consistent with the company’s FFO per share growth targets. Assuming no share buybacks and a 6% annual dividend growth, BEP could trade at 2.5x IA (below historical averages) and still deliver a compounded annual shareholder return of approximately 24%, including dividends.

BEP currently offers a 7% dividend yield, meaning the stock only needs a 3% annual price increase to achieve a 10% compounded annual return. With a decade-low valuation, projected profit growth, and potential for multiple expansion, BEP looks poised for significant returns.

Comparison with BN

While BEP appears undervalued, I favor Brookfield Corporation (BN) for growth-focused investing. BN reinvests profits for long-term growth, while BEP distributes ~86% of profits via dividends, catering to income investors. Taxes on dividends reduce BEP’s after-tax return compared to BN, which focuses on compounding growth.

That said, BEP could offer slightly higher returns over the next five years based on its current valuation and projections. However, my higher conviction in BN, its reinvestment strategy, and its growth potential makes it the better fit for my portfolio.

Conclusion

BEP presents an attractive opportunity for income-focused investors with its 7% yield, projected 10% dividend growth, and undervalued price multiples. Despite bearish sentiment on renewables, BEP’s strong management, growth outlook, and operational performance position it as a high-quality investment in the sector. While I remain committed to BN for its growth potential, BEP is a standout renewable stock that could outperform the S&P 500 in the coming years.

My view is BEP is still a risky play, The multiple year Negative EPS and Huge Debt is a big concern.

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